This invention relates to financial data processing systems and, more particularly, to such a system which utilizes negotiable instruments such as bank checks as the primary documents for accomplishing the automatic transfer of funds.
Historically, the transfer of funds has been accomplished in a number of ways. The most direct, of course, is the transfer of specie or currency from one party to another. Not quite as direct in its use, but very widely used, is the system of checking accounts by which a person directs his bank or other financial institution to make payment to the person named on the check or to his order. Checking accounts allow one to carry a single form of document which may be filled in with any amount and negate the necessity of carrying large amounts of cash. Checks may only be cashed by the payee or to his order and thus are more secure than cash. The rights and duties of the parties to a checking transaction have been clearly established by the courts. Checks are almost universally accepted where the identity of the maker can be verified or sufficient time allotted for funds transfer. For all of these and other reasons, checks have proven essential to both households and businesses; and people have become wedded to the system.
Checking systems do have disadvantages, however. For example, checks are often forged, drawn on accounts with insufficient funds, and lost. More importantly, the present system of check processing through a banking system requires a great number of labor intensive steps for check writers, check receivers and check processors (financial institutions). For example, a check is written, exchanged, endorsed, deposited at a financial institution, and then handled many different times before it is returned to its maker along with a monthly statement. Many of these processing steps require the creation of additional documents and represent a substantial amount of labor. The usual practice involves three different microfilm steps, several different balancing operations, and various other steps such as proving, encoding, capturing and sorting. Consequently, the processing of checks is quite expensive and time consuming.
Checking processing costs, of course, extend not only to the financial institutions, but also to the payor and payee who must each perform record keeping tasks in the course of their check handling. However, because financial institutions absorb the highest portion of check processing costs, they have been experimenting with the feasibility of alternative forms of funds transfer which are more efficient. The use of a plastic credit card has evolved as an alternative for checks written at retailer locations. In the usual case, credit cards do provide a substantial surety that funds exist to cover the amount of the transaction. However, they are also subject to theft and fraud. While the processing of credit card transactions is quite automated the relative volume of transactions, as compared to check transactions, results in credit cards being an expensive form of funds transfer as well. U.S. Pat. No. 3,594,727, issued July 20, 1971, to a co-inventor of the present invention, discloses a system for automating the use of credit cards to obviate the processing problems and the expense involved therewith. Even such advanced systems for handling credit cards will not eliminate the need for a more efficient check processing system, due to the public's reliance upon checks as a preferred form of funds transfer.
The principle underlying automated forms of funds transfer is that the information normally written on checks is converted into machine readable form to gain the efficiency and control inherent in the use of computers. The technology and procedures needed to support this form of automated funds transfer are gradually being refined by the financial industry. However, the credit card not only requires a change in customer habits, but cannot be used in many situations, as in transactions involving personal dealings. A system which will automate the processing of checks, thereby reducing the time, the labor, the documents used, and the expense of such processing, is obviously desirable. Moreover, such an automatic check processing system would be even more desirable if it could be made to provide substantial security for the parties involved and eliminate other problems inherent in the present system. While it is known in the prior art to verify the existence of an account by reading encoded information on a check, this function is only equivalent to usage of a credit card and cannot suffice as the basis for a complete financial transaction.